YouTube sees money in gaming-video eyeballs

By Malathi Nayak

8 Min Read

Visitors stand in front of a logo of YouTube at the YouTube Space Tokyo, operated by Google, in Tokyo February 14, 2013.Shohei Miyano

SAN FRANCISCO (Reuters) - To imagine how YouTube might one day become a money-spinner for content producers, consider the power of the irreverent video gamer and online star PewDiePie over his young, free-spending audience.

Each time the wildly popular YouTube impresario has donned Razer headphones in one of the many zany videos that feature him playing games, the product has sold out.

PewDiePie, who is not paid to endorse the brand, "really helped us in terms of getting traction on a much larger audience," said Min-Liang Tan, chief executive of San Diego-based Razer, which makes gaming hardware. "It's incredible that YouTube personalities are coming up ... and I think it can only grow."

PewDiePie's uncanny trendsetting talent highlights the potential that content related to video games holds for Google Inc as it looks for ways to build its YouTube video platform into a powerful new revenue stream.

Advertisers and media companies are indeed already placing big bets on the likes of PewDiePie and others creating gaming-related content in a bid for the prime but underserved audience of 18- to 34-year-olds that devour video games.

Just last week Walt Disney Co agreed to fork over as much as $950 million to buy Maker Studios, one of YouTube's largest production and distribution networks. PewDiePie, whose real name is Felix Kjellberg, is Maker's biggest star.

The success of the 24-year-old, with his profanity laced improvisational videos, matches the explosive growth of video-game-based channels on YouTube. His channel has more than 25 million subscribers who can view his content for free, more than Beyonce's and President Barack Obama's channels combined.

Video gamers, who spent more than $70 billion last year on hardware and software, have gravitated to YouTube. Two of the 10 most-subscribed channels and four of the most-viewed channels on YouTube are gaming channels, according to Zefr, an online video marketing and rights management company based in California.

Meanwhile, online video production outfits such as Maker have grown into million-dollar operations over the past couple of years. Lingering questions about their profitability have not deterred investors.

Last year, DreamWorks bought Awesomeness TV, a YouTube teen network, whose videos offer everything from beauty tips to life advice, in a deal that could total $150 million if it reaches certain earning targets. Time Warner Inc's Warner Bros has bet heavily on gaming-focused network Machinima by participating in two hefty funding rounds.

How Disney monetizes Maker's online video network and whether the deal would affect the prospects of PewDiePie and other content creators remain to be seen.

But gaming content on YouTube - anything from reviews and video of gameplay to unboxing of hardware - is undoubtedly drawing a disproportionate number of eyeballs, given Zefr's assessment. This has sponsors and potential buyers excited.

Subscriptions across YouTube's hundreds of video game channels tripled in 2013 from 2012, according to Erica Larson, head of industry, media and entertainment-gaming at YouTube. Some of the more popular content makers rake in six-figure annual revenues, she said.

Google, which bought YouTube in 2006, is now aiming to attract advertising dollars by bringing slickly produced content to a platform that once featured mostly amateur videos. Gaming is a bright spot in that effort.

YouTube, one of Google's most prized assets, has been slow to monetize. As traditional online advertising matures, the search giant is exploring new ad models to generate revenue. Online video advertising is considered one of the most promising sources of future growth for Internet companies.

Google has started to woo marketers as it seeks a bigger slice of television ad budgets for YouTube. For instance, it has begun offering audience guarantees to advertisers and reserved ad slots on some of its most popular videos in exchange for spending commitments, as first reported in the Wall Street Journal on Monday.

AD DOLLARS

Social Blade, a YouTube analytics firm, estimates that ad revenue on popular gaming channels ranges from about 60 cents to $5 per thousand ad views. Based on a channel's popularity, videos can get thousands to millions of views.

Social Blade estimates PewDiePie's 2013 revenue to be anywhere from $1.6 million to $16.1 million, a range that illustrates the difficulty of independently determining YouTube revenue. The gamer did not respond to requests for comment but has dismissed the estimate on Twitter without disclosing details.

YouTube and outfits like Maker take an undisclosed cut of the revenue. Most content makers "are making money through ads, but some are working with game companies on creating content for them," YouTube's Larson said.

Take Devin Super Tramp, the YouTube alias of Devin Graham. He makes promotional videos for companies with big brand names, including game publisher Ubisoft.

Graham's first video, inspired by the shadowy world of Ubisoft's "Assassin's Creed" game, featured a parkour artist leaping over and around obstacles in an urban landscape, dressed in the distinctive getup of the game's protagonist.

The video attracted 13 million views in its first three months after it was posted and is close to more than 33 million views to date. Ubisoft took notice of its popularity and partnered with Graham to make more videos.

Graham, who dropped out of college three years ago to build a YouTube video production company with partners such as PepsiCo and Ford Motor Co, declined to disclose his revenue but said product placements, selling video footage and advertising revenue help him turn a profit.

THE INFLUENCERS

Working with YouTube trendsetters like Graham can help companies garner millions of views during promotional campaigns, said Justin Landskron, Ubisoft's director of digital marketing.

"These people ... are considered by their subscribers, many of them, as tastemakers. And that introduction ends up being incredibly valuable word of mouth," he told Reuters.

For now, it's a challenge to pin down in dollars and cents how companies benefit from such tie-ups, or the value of the gaming audience. But it's clear that gaming is among the top genres where YouTube's audience is concentrated.

The 700,000 YouTube videos on "Grand Theft Auto V" have collectively attracted more than 5 billion views, according to Zefr, which helps clients like Hasbro Inc and Adidas AG discover influential channels and personalities.

In a nod to online video's persuasive power, big brands that once worked ceaselessly to identify and take down copyright-infringing videos are now open to working with grassroots content makers, Zefr co-founder Zach James said.

Some publishers allow the independents to use copyrighted intellectual property and give them resources to produce videos. Often the publishers will run ads in the videos or ask the content producers to include links to game trailers, Graham explained.

"Now they've seen the value," he said. "They're happy because it's free publicity and exposure."